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Even if they go mostly unnoticed, industrial businesses are the backbone of our country. Still, their generally high capital requirements expose them to the ups and downs of economic cycles, and the market seems to be baking in a prolonged downturn as the industry has shed 6.2% over the past six months. This performance was discouraging since the S&P 500 stood firm.

Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. Taking that into account, here is one industrials stock poised to generate sustainable market-beating returns and two we’re passing on.

Two Industrials Stocks to Sell:

Alamo (ALG)

Market Cap: $2.27 billion

Expanding its markets through acquisitions since its founding, Alamo (NSYE:ALG) designs, manufactures, and services vegetation management and infrastructure maintenance equipment for governmental, industrial, and agricultural use.

Why Are We Wary of ALG?

1. Sales trends were unexciting over the last two years as its 3.7% annual growth was below the typical industrials company

2. Sales are projected to remain flat over the next 12 months as demand decelerates from its two-year trend

3. Free cash flow margin dropped by 4.9 percentage points over the last five years, implying the company became more capital intensive as competition picked up

Alamo’s stock price of $187.12 implies a valuation ratio of 17.4x forward price-to-earnings. If you’re considering ALG for your portfolio, see our FREE research report to learn more.

AeroVironment (AVAV)

Market Cap: $3.52 billion

Focused on the future of autonomous military combat, AeroVironment (NASDAQ:AVAV) specializes in advanced unmanned aircraft systems and electric vehicle charging solutions.

Why Is AVAV Not Exciting?

1. Efficiency has decreased over the last five years as its operating margin fell by 7.5 percentage points

2. 24.6 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position

3. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

AeroVironment is trading at $125.94 per share, or 28x forward price-to-earnings. Check out our free in-depth research report to learn more about why AVAV doesn’t pass our bar.

One Industrials Stock to Watch:

Energy Recovery (ERII)

Market Cap: $868.3 million

Having saved far more than a trillion gallons of water, Energy Recovery (NASDAQ:ERII) provides energy recovery devices to the water treatment, oil and gas, and chemical processing sectors.